Krugman: How do you solve a problem like ‘vibesession’?

By Paul Krugman / The New York Times

If Donald Trump wins the election, the main reason will surely be that a majority of voters believe that America’s economy is in bad shape. And no matter how much you may dread a second Trump administration, electoral defeat for an incumbent who is seen as presiding over a bad economy is, at least in one sense, politics as usual.

By normal measures, however, the U.S. economy isn’t in bad shape. In fact, it’s doing quite well, better than almost all its global peers.

So much, you may say, for official statistics: If people feel that they’re doing badly, well, when it comes to the economy, the customer is always right.

But here’s the kicker: When asked, most Americans don’t say that they’re doing badly. On the contrary, survey after survey finds that most voters are feeling positive about their personal financial situation, even as they insist that the economy is terrible overall. Some surveys also ask an in-between question: What’s the state of your local economy? And respondents are typically much more positive about the economy in their own state than they are about the nation’s as a whole.

Let me be honest: I didn’t want to write about this subject yet again. I’ve been banging this drum for more than two years and you’ve hung in there with me. But I felt that in good conscience I needed to say something about two new surveys that appear to make the paradox of poor economic perceptions even starker.

Before I get to those surveys, let me say that in some ways the debate about the causes of economic pessimism has moved substantially over time. When I first wrote that there was a disconnect between economic perceptions and economic reality, I think many people dismissed the argument. Over the course of 2023, however, as inflation fell rapidly while the economy defied predictions of recession, there seemed to be ever fewer economic commentators insisting that things really were bad, and more acknowledging that something strange was happening: a vibecession.

Outside the economic commentariat, however, it often feels as if I’m butting my head against a wall. The dialogue tends to go something like this:

Me: “People say that the economy is terrible, but that their personal financial situation is good. That’s strange.”

Critic: “You’re saying that people should feel good because official statistics are good, ignoring their lived experience. Good luck with that.”

Me: “No, that’s not at all what I’m saying. Never mind the official statistics. The point is that if you ask people about themselves — that is, their lived experience — they’re fairly positive. But they still say that the economy, big picture, is bad.”

Critic: “So you’re telling people that fancy statistics matter more than their lived experience.”

Sigh.

About those recent surveys: The gold standard for assessing economic perceptions is the Federal Reserve’s annual survey of economic well-being of American households. The results of the latest survey, taken in October, have just been released, and while there’s a lot of information in the report — notably, families with children appear to have been hit hard by the end of pandemic-era financial aid — the key finding hasn’t changed much. Most Americans continue to say that they’re doing OK financially, but they think the national economy is doing badly — while they’re being considerably more positive about their local economy.

Wasn’t it always thus? No. As the report notes, “the gap between people’s perceptions of their own financial well-being and their perception of the national economy has nearly doubled since 2019.”

And these results match what pollsters tell us. For example, according to the latest Quinnipiac University poll of Wisconsin, 65% of registered voters there say that the national economy is not so good or is poor, while the same percentage say that their own financial situation is good or excellent.

Then there’s the new Harris Poll survey conducted for The Guardian. The headline is that 56% of Americans believe that our economy — which is adding jobs in the hundreds of thousands each month — is in a recession. But “recession” may not mean the same thing to most people that it does to economists. What’s harder to rationalize is that roughly half of respondents believe that unemployment, which remains close to a 50-year low, is at a 50-year high or, even more startling, that stock prices — which have been hitting records, and are reported everywhere, all the time — have been falling.

Now, you’re probably expecting me to offer both an explanation of what’s going on and a strategy for Democrats to turn the situation around. At this point, however, it’s surprisingly hard to pin down where negative views of the economy are coming from. And I’ll save any political advice for a later column.

For now, let’s just say that while negative perceptions about the economy are obviously a major problem for President Joe Biden, it’s a peculiar sort of problem. The economy isn’t actually bad — in fact, it’s in remarkably good shape. Furthermore, most (although of course not all) Americans are feeling fairly good about their personal finances. Yet somehow there’s a pervasive sense that the economy is bad, and that sense — not economic reality, or even personal experience — is what’s hurting Biden’s campaign.

This article originally appeared in The New York Times.